Why You Should Stay Away From the MMM Ponzi Scheme

Why You Should Stay Away From the MMM Ponzi Scheme

What is MMM? Apparently, “MMM is a community where people help each other.” That does not help anyone does it? The definition continues, “MMM is a community of people providing each other financial help on the principle of gratuitousness, reciprocity and benevolence.” This seems like a community of people banding together to help each other. The website calls MMM a “mutual-aid-fund” and tries as much as possible to alienate itself from the transactions between the people “helping each other”. It however all goes downhill when one decides to find out what MMM stands for. MMM is Mavrodi-Mavrodi-Melnikova, yes, the MMM of the 1990s. That should make the whole world pause and think.

MMM was a Russian company which is famed for perpetrating one of the most notorious Ponzi schemes. The company is the Godfather of the trade and no one does pyramid schemes better than them. It was established in 1989 by Sergei Mavrodi, his brother Vyacheslav Mavrodi and Olga Melnikova. Sergei in particular has become the face of fraud in the 21st century. When the company collapsed in 1997, it went out with around $10 billion and 50 lives. It is reported that the 50 committed suicide in the aftermath of heavy losses courtesy of the one and only Sergey Mavrodi. Mavrodi was not deterred, he started Stock Generation Ltd, trading in virtual, fictitious stocks and managed to fleece 20,000 to 275,000 people of at least $5,5 million. He was convicted for fraud charges and sentenced to an effective four and a half years in jail. In 2011, he rose from the ashes and created MMM-2011, the fore-runner of MMM South Africa and MMM East Africa which use the same modus operandi.

Soon the world saw him create his own virtual countries, one of which was Republic of Bitcoin. People bought the idea. They were promised ridiculous 100% returns on their money. People believed it and it all came crashing down one day.

“We regret to inform you that we have to close down the Republic of Bitcoin. It was an experiment and unfortunately, it failed,” read the MMM Global statement. One of the clearly suspicious antics of Mavrodi is his creation of fictitious things- from money to stock and even countries. He always has a large inflow of real money coming in to back him up in these pure fictions and real people willing to be a part of the Mavrodian world. It is a pity that this world seems to have one king- him and everyone else is a pawn. The latest schemes, MMM South Africa and East Africa have come masked in a Stokvel face. They propound the notion that it is a community of people helping each other and the system actually uses such terms as “providing help” but interestingly, the person you provide help to is not the one who pays you back, it is someone else who puts in money to also provide help for you. Is this a Stokvel? The starting point is understanding what a Stokvel is.

Trevor Hattingh from the National Consumer Commision (NCC) said to Fin24, “If MMM Global SA is a Stokvel and not a pyramid scheme, as claimed by some of its members, then it needs to be a member of the National Stokvel Association of South Africa (NASASA) or a similar body and conform to its rules.”

Women24’s understanding of a stokvel is that “a group of Stokvel members will each contribute a fixed amount on a regular basis and take turns to receive the full amount”. There are variations but this is the fundamental understanding of what a Stokvel is. MMM South Africa has a structure that largely mimics the Stokvel system in the manner of letting people handle their transactions. Its public pitch is a Bolshevik influenced affair, making people feel like they are a part of something big, wealth creation revolution.

“The goal is to destroy the world’s unjust financial system,” the website reads. How do they do it? You register and “provide help” to someone. Providing help earns you an internal currency of the system-the Mavro. This Mavro accumulates at 30% per month. What this means is if you provide help of $10, you earn Mavros worth $13 at the end of the month and you can sell these by asking for help. So many questions now arise, chief among them being; where does the 30% come from? Who finances it? What investment backs that interest? It seems apparent now that people who put in money finance the claims of those who have already put in money.

What is a pyramid scheme, anyway? A pyramid scheme or a Ponzi is an illegal investment scam based on a hierarchical setup. New recruits make up the base of the pyramid and provide funding, or so called returns, given to the earlier investors/recruits above them. It is therefore very possible that you will help someone, earn Mavros but when you try to sell, no one will want to buy them, in other words, no one will want to provide help to you.

There you go! The nature of money is that if you get 30% above what you put in, there should be some labour that substantiated that increase. Someone somewhere has to work for it. In this case, it is the person providing help and putting in money who works for you by virtue of you having joined earlier. This is frighteningly close to a pyramid if it is not one. To ice off that cake, referrals earn you Mavros. The same Mavros you will sell by asking for help.

Behind MLM then argued that, “as long as affiliate investment is the only source of revenue entering the scheme, any MMM Global scheme will ultimately collapse.” They add that, “They will continue to pay ROIs (Return on Investment) until withdrawals exceed the rate of new investment, and then run out of money all the same.”

In simpler terms, you may end up stuck with that fictitious Mavro and you will have no one to approach for restitution. Meanwhile, the masses will protest like the South African “Mavrodians” did in favour of this scheme until it collapses in their faces leaving them thousands of Mavros richer in the cyber world and a lot poorer in the real world. Easy come, easy go.